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Falling star

China’s leaders had been hoping that exports of its bullet trains would win foreign allies both geopolitically and economically. But its ‘railway relations’ have suffered setbacks in a series of countries (WiC329), including notably Venezuela, where work ground to a halt two years ago.

Last month there were violent protests after the South American country decided to scrap its 100-Bolivar banknote. Chinese-owned businesses seem to have been targeted in the unrest. And as news filtered back to China itself, the newspapers lamented that the currency crisis may have sealed the railway contract’s fate too. “China Railway has spent $7.9 billion in Venezuela skipping stones,” a commentator lamented on Tencent Finance.

That has not stopped Beijing from banking on even pricier technology to win new friends. “After railway diplomacy China is taking to satellite diplomacy,” United Daily News noted.

It reached this conclusion after the State Council published a white paper titled ‘China’s Space Activities in 2016’ celebrating the 30-day visit by Chinese astronauts to the Tiangong-2 space station (the longest yet for the country’s space programme).

Besides boasting about the achievements of its lunar team, the report also detailed fast-growing commercial services in space. In recent years Chinese firms have sold satellites or completed in-orbit delivery services for dozens of countries such as Nigeria, Laos and Belarus (often the contracts come with attractive financing from Chinese banks). The white paper suggests further initiatives to construct a “space information corridor” to run alongside China’s better known Belt and Road plans closer to the ground. The white paper says that the state will support local firms in such commercial endeavours.

Xinwei Technology, presumably, will be one of the frontrunners in this state-backed boom. Its chairman Wang Jing has already taken on audacious engineering projects including the construction of a $40 billion canal in Nicaragua. And in 2014 Xinwei expanded into space services, with a plan to launch 32 low-orbit communication satellites within five years (see WiC261).

However, Wang’s star seems to have dimmed recently. The first signs of strain appeared last September when Xinwei unveiled a $285 million takeover of Israeli satellite firm Space Communication (SpaceCom). Barely a week after the announcement, it was rocked by the news that a SpaceCom satellite had been destroyed as its carrying rocket exploded on SpaceX’s launch pad.

Xinwei said it was in talks to proceed with the takeover but there was more bad news last month when Netease Finance published a lengthy article questioning its financial health. The report said Xinwei had amassed total debts of Rmb9 billion by September last year but it also questioned whether this number excluded liabilities from some of its riskier overseas joint ventures (in places like Cambodia, Crimea and Tanzania) for which Xinwei may have made financial guarantees worth more than Rmb14 billion.

“Xinwei has hidden an enormous amount of debts,” Netease Finance warned, adding that some of the major shareholders have also been trying to offload their stakes.

The article was widely forwarded and Xinwei’s Shanghai-listed shares plunged the 10% daily limit before trading in its stock was suspended.

Xinwei rebuffed the report as “subjective and speculative”. But nevertheless, the coverage has stirred media interest in the company’s business model. “Is Xinwei a miracle of the emperor’s new clothes?” Investor Journal asked, pointing out that the bulk of Xinwei’s revenues have been derived from projects in more risky developing countries, where its business partners typically rely on Chinese banks for financing.

Others have questioned whether some of Xinwei’s much-hyped contracts such as the construction deals for the new Nicaragua Canal will ever proceed.

From its peak in June 2015, Xinwei’s share price has dipped nearly 80%. No doubt its shareholders will be hoping that the Chinese government’s enthusiasm for satellite diplomacy in 2017 could help Wang get Xinwei’s shares moving skyward again.

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